Corporate versus Personally owned Life Insurance
As a general rule, premiums paid on life insurance policies are not tax deductible either personally or corporately. This favours ownership at the corporate level at the first level of taxation before the income is paid out to the individual owner.
For example , if the life insurance premium was $1000 and the owner owned the policy personally she would have to earn $2000 and assuming a personal marginal tax rate of say 50% pay tax of $1000 to afford the premium of $1000. If the policy was owned corporately in a CCPC, the corporation would only have to earn $1176 assuming a small business tax rate of 15% pay tax of $176 to afford the premium of $1000. If the corporation was not eligible for the small business rate and assuming a corporate tax rate of 27% the corporation would have to earn $1369 pay the tax of $369 to afford the premium of $1000. Also, the policy death proceeds are credited in excess of the adjusted cost basis (“ACB”) and paid to the family beneficiary’s tax free at death of the owner and, as in personally owned policies, corporate owned policies that pre-fund future premiums up to the CRA maximum grow on a tax deferred basis which is an additional benefit.